Financial institutions can do more to prevent domestic financial abuse. Here’s how

Innovative financial models have revolutionized access to finance for millions, particularly women, across the world. While there’s plenty to celebrate, we must not overlook the fact that the same people who benefit can also remain vulnerable to financial abuse.

Broader access to financial services equips individuals and communities with essential tools to establish economic stability and pursue upward mobility. Widespread financial access promotes saving and investment, boosting capital formation and supporting long-term development. Financial inclusion not only improves individual well-being but also fortifies the foundations of a more equitable and robust economy.

These opportunities, however, overlook how financial services can also be weaponized to harm others and result in financial abuse.

For the last six years, Grameen Foundation has explored the connection between financial access and financial abuse. The results are alarming and led us to create the comprehensive Playbook: The Role of Financial Institutions in Responding to Domestic Financial Abuse that outlines steps financial institutions can take in responding to domestic financial abuse. Its aim is to inspire innovation and share best practices among financial institutions globally, particularly those serving the most vulnerable populations.

Financial abuse, a widespread but often ignored form of economic coercive control, is present in nearly 99% of US domestic abuse cases. It involves sabotaging, exploiting or controlling someone's access to financial resources, with long-lasting effects on financial stability and well-being, even after leaving an abusive relationship.

Despite its prevalence, financial abuse is insufficiently documented in terms of its rates and economic costs. This silent epidemic is predicted to impact 1 in 3 women globally, trapping millions in cycles of poverty and violence.

Financial institutions – from banks to digital finance providers – often unknowingly and unintentionally help facilitate this abuse by sending account alerts to abusers, enabling coerced loans or requiring joint signatures with harmful partners.

Financial abuse is deeply connected to women's economic security, but this form of abuse is rarely acknowledged and not consistently defined in laws. Without a standard measurement, it remains poorly understood and documented.

Let’s examine what financial abuse might look like. Imagine a university graduate, just starting her first job, excited to earn her own money and gain independence. After moving in with her boyfriend, he offers to help her manage her finances.

Eventually, he suggests a joint account for bills. Shortly after that, he insists that she deposit her full pay cheque into the shared account and then he restricts her access. Soon, she needs to ask his permission to buy a simple thing like lunch for herself.

She feels trapped. When she suggests opening her own account, her boyfriend accuses her of mistrust and threatens to leave. Finally, after confiding in a friend, she realizes this is financial abuse and that her boyfriend is controlling her finances to manipulate her.

Another common scenario of financial abuse can be a widower, say, who receives a small pension and lives on the edge of the city. One day, his granddaughter offers to help him manage the pension payments, which are now being distributed via mobile money platforms.

His granddaughter convinces him to register the mobile wallet under her name since he can’t read or write well and doesn't have a smartphone. It isn't long until his granddaughter starts withdrawing the money for herself, lying to him about delays in payment.

When he tries to ask a local official for help, he is told that he has no proof the money was ever misused, since the account was legally in his granddaughter's name.

Stories like this are more common than we want to believe and force millions of women, elders and many who live in poverty into situations of harm.

To tackle the issue of financial abuse, we need a fundamental shift in how we approach financial services. We must integrate prevention, protection and recovery from financial abuse into the very fabric of every form of finance.

To effectively respond to domestic financial abuse, Grameen Foundation’s playbook outlines four key workflows financial institutions can take, based on existing frameworks for fraud and elder financial exploitation:

Rewiring our financial system to be one that protects and prevents financial abuse would not just result in increased safety for women or vulnerable populations. It would also help reduce substantial economic losses.

AARP estimates that victims of elder financial exploitation in the US lose a total of $28.3 billion annually – with $20.3 billion stolen by family, caregivers and friends through financial abuse and $8 billion by unknown perpetrators through fraud.

Meanwhile, the US Federal Trade Commission received fraud reports from 2.6 million consumers in 2023, accounting for more than $10 billion in losses. Approximately 64,000 people reported a romance scam, accounting for approximately $1.14 billion in losses, with the median loss per person of $2,000.

And in Australia, where the costs of domestic financial abuse have been measured, victims incur approximately $5.7 billion in direct costs and the broader economy incurs $5.2 billion in costs in 2023.

The time has come to move beyond financial access to financial safety. At Grameen Foundation we envision a future where efforts to reduce poverty do not contribute to an increase in financial abuse.

With our playbook in hand, we urge partners across sectors to work with us to adopt abuse-informed design, processes, and customer support. We must act now to create a world where financial systems support and protect everyone, especially the most vulnerable.